ELECTRICITY DISTRIBUTION INDUSTRY DECISION The Presidency Department of Performance Monitoring and Evaluation ELECTRICITY DISTRIBUTION INDUSTRY DECISION Presentation to Energy Portfolio Committee National Assembly 17 October 2012

Statement on Cabinet meeting of 8 December 2010 (GCIS, 9 December 2010) “Cabinet decided to terminate the Electricity Distribution Industry (EDI) restructuring and to discontinue the process of creating the Regional Electricity Distribution (REDS) with immediate effect. Although the Electricity Distribution Industry Holdings (EDIH) had made significant progress in establishing the REDs, Cabinet approved the recommendation that the Department of Energy takes over the programmes previously executed under the EDIH mandate. The Department will review the whole electricity value chain with a view to developing a holistic approach to revitalize electricity infrastructure, energy security as well as the financial implications. An administrator will be appointed to attend to the winding up of EDIH. The EDIH Board will remain accountable until the end of the 2010/11 financial year.”

Previously reported Progress on EDI restructuring related sub-output within Outcome 6 Output 2: Sub-output Targets Progress reported by DoE for 1st Quarter 2012/13 DPME comments 2.7 Restructuring of the electricity distribution industry Decision on the end state of EDI Holdings by 2010/11 The decision on EDI Holdings has been finalised by Cabinet, and EDI restructuring process terminated. In the revised Delivery Agreement, the project will be excluded. Distribution infrastructure maintenance backlog at municipal level still needs to be addressed DPME

Progress reported by DoE for 1st Quarter 2012/13 Previously reported Progress on EDI restructuring related sub-output within Outcome 6 Output 2: Sub-output Targets Progress reported by DoE for 1st Quarter 2012/13 DPME comments 2.2 Develop a funding and implementati on plan and reduce the electricity distribution infrastructure maintenance backlog of R27.4bn (baseline in 2009) to R15bn by 2014 Funding and implementation plan in place by March 2011 Report detailing a map of distribution asset status for 50% of all Municipalities by 2012/13 Initiate interventions, monitor rehabilitation projects and reduce backlog by R8bn in 2012/13 The Cabinet Memo on the Approach to Distribution Asset Management (or ADAM) has been approved at the cluster and will be submitted to Cabinet for consideration. The options considered for funding ADAM at municipal level include (i) tariff based, or (ii) concessionary financing through development financial institutions, subject to regulatory conditions that municipalities will be required to accept. Consultations ongoing regarding the financing options All Metros have been mapped in respect of the status of their electricity distribution infrastructure On actual distribution network rehabilitation, pilot projects will be initiated once the ADAM concept has been approved by Cabinet The planning work is behind schedule Difficult to ascertain whether R8bn reduction in backlog in 2012/13 will be met or whether it is adequate, because DoE is not reporting on municipal rehabilitation expenditure using own funds. Municipalities are already receiving maintenance funding through Nersa approved tariffs. DPME

Aggregate Municipal spending/budgeting on Electricity Distribution System (source NT) Summary of All Municipalities - Table A9 Asset Management for 4th Quarter ended 30 June 2011 (Published Figures as at 2011/10/26) Description 2007/08 2008/09 2009/10 2010/11 2011/12 Medium Term R thousands Audited Outcome Full Year Forecast Budget Year 2011/12 Budget Year 2012/13 Budget Year 2013/14 CAPITAL EXPENDITURE   Total New Assets Infrastructure - Electricity 1 068 144 6 050 799 4 500 663 4 896 269 4 597 825 3 773 838 4 162 601 Total Renewal of Existing Assets 399 545 604 896 584 667 1 086 618 1 263 709 1 367 085 1 254 245 Total Capital Expenditure 1 467 688 6 655 695 5 085 330 5 982 887 5 861 533 5 140 922 5 416 845 EXPENDITURE OTHER ITEMS Repairs and Maintenance by Asset Class  - - 48 850 62 580 299 713 319 571 342 136

Aggregate Municipal spending/budgeting on Electricity Distribution System (source NT)

Aggregate Municipal spending/budgeting on Electricity Distribution System (source NT)

Eskom Distribution spending/budgeting on Electricity Distribution System (source Eskom) Eskom Distribution - 4th Quarter ended 31 March 2012 Description 2007/08 2008/09 2009/10 2010/11 2011/12 Medium Term R thousands Outcome Budget Year 2011/12 Budget Year 2012/13 Budget Year 2013/14 CAPITAL EXPENDITURE (Eskom & DOE funded for electrification)   Total New Assets Infrastructure – Electricity (Eskom funded) 2 864 110 3 615 086 3 750 526 4 035 069 4 501 660 4 877 549 5 358 582   Infrastructure – Electricity (DOE funded) 903 519 861 151 1 173 252 1 460 829 1 575 412 1 648 569 1 750 010 Total Renewal of Existing Assets Infrastructure - Electricity 904 988 1 254 529 1 337 508 1 742 851 2 074 170 2 358737 2 746 109 Total Capital Expenditure Infrastructure – Electricity (Eskom & DOE) 4 672 618 5 730 767 6 261 287 7 238 749 8 151 243 8 884 856 9 854 702 EXPENDITURE OTHER ITEMS Repairs and Maintenance by Asset Class 1 812 000 2 198 000 2 367 000 2 956 000 3 858 000 4 556 000 5 612 000

Aggregate Eskom spending/budgeting on Electricity Distribution System (source Eskom)

Aggregate Eskom spending/budgeting on Electricity Distribution System (source Eskom)

Combined Distribution spending/budgeting on Electricity Distribution System (Source: NT, Eskom) RENEWAL OF EXISTING ASSETS (R'000) 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Eskom: Renewal of Existing Distribution Assets 904 988 1 254 529 1 337 508 1 742 851 2 074 170 2 358 737 2 746 109 Municipal Renewal of existing electricity assets 399 545 604 896 584 667 1 086 618 1 263 709 1 367 085 1 254 245 Total Distribution System Existing Asset Renewal 1 304 533 1 859 425 1 922 175 2 829 469 3 337 879 3 725 822 4 000 354 REPAIRS AND MAINTENANCE (R'000) Eskom: Distribution Repairs and Maintenance 1 812 000 2 198 000 2 367 000 2 956 000 3 858 000 4 556 000 5 612 000 Municipal Repairs and Maintenance on electricity  - - 48 850 62 580 299 713 319 571 342 136 Total Distribution System Repairs and Maintenance 2 415 850 3 018 580 4 157 713 4 875 571 5 954 136 TOTAL SPEND/BUDGETING ON EXISTING DISTRIBUTION (R’000) 3 116 533 4 057 466 4 338 026 5 848 049 7 495 592 8 601 392 9 954 489

Combined Distribution spending/budgeting on Electricity Distribution System (Source: NT, Eskom)

CONCLUSION Post the Cabinet decision to terminate EDI restructuring, there has been a marked improvement in the dedication of resources towards the renewal as well as the repair and maintenance of electricity distribution infrastructure by municipalities in aggregate as well as Eskom for the areas in which it acts as a distributor. Assuming the budgeted figures are spent, then the R8 billion target for distribution expenditure in 2012/13 will be met and possibly exceeded. Regarding coverage of the backlogs, if the inclining trajectory (reflected in the previous slide) of combined Eskom and aggregate municipal commitment of resources to the renewal, repair and maintenance of distribution infrastructure continues, we will have spent approximately; R30 bn by 2014/15 R43 bn by 2015/16 R58 bn by 2016/17 It seems therefore possible to cover the R27bn – R35bn estimated aggregate backlog in a reasonable time, if the inclining trajectory continues.

and delivery agreement guide Thank you Go to http://www.thepresidency.gov.za/dpme.asp for PME documents including narrative guide to outcomes approach, outcomes documents and delivery agreement guide 14